Despite plans to live large in the voice over IP world, Level 3 Communications is shrinking its employee base, today announcing a work force reduction of up to 600 employees.

Speaking at the 15th Annual Smith Barney Citigroup Entertainment, Media and Telecommunications Conference in Arizona, Level 3 CEO James Q. Crowe said the optical backbone company is poised to take advantage of the looming boom in consumer VoIP sales but in the meantime is determined to control costs in order to reach positive free cash flow status. The job cuts will cost $20 million in severance in the near-term but save the company $60 million to $70 million per year thereafter.

Crowe stressed Level 3’s status as a VoIP wholesaler to virtually every major service provider and said the company stands to win no matter which retail players claim the biggest VoIP market share. Level 3 has already landed seven of the nine largest VoIP rollouts, including those by Verizon and BellSouth, he added.

"Of those nine, we’ve signed five and are in negotiations with two," Crowe said. "We have a very large opportunity, no matter who wins the VoIP competition. The only change is how much we make. Our take is $5 to $20 per user, depending on who wins or loses. With the [Bell companies] our take is in the $5 to $7 range, if new entrants win and buy their whole infrastructure from us, it’s in the $15 to $20 range, and with cable, it’s right in between the two."

Level 3 expects VoIP players to ultimately be required to provide voice services such as E911 and operator assistance and to assist law enforcement officials under CALEA rules.

"That favors us, because we have built those capabilities in from the start," he said.

Crowe also encouraged conference attendees to stop thinking of Level 3 as a long-distance company, given its substantial metropolitan network assets. He said Level 3 operates just less than one million fiber miles in the metro space and has presence in 870 points of the 1200 major traffic aggregation points in the U.S.

"We are the fourth largest local phone company, behind BellSouth and ahead of Qwest," he said.